HMRC ‘Nudge Letters’
A ‘nudge letter’ (‘a nudge letter’) is one issued by HMRC with intent to encourage a taxpayer, whether it be an individual or corporate body, to review tax returns and finances to ensure that all financial gains have been fully declared to HMRC.
Where a tax return appears to HMRC to be incorrect, it does not necessarily have to proceed by adopting the softer option of issuing a nudge letter; it may proceed straight to the commencement of an enquiry or a full tax investigation.
It is frequently the case that the issue of a nudge letter proves to have been unnecessary where, for example, the uncertainty is resolved by an explanation proving innocence or full and complete disclosure has, in fact, already been made.
Even where the taxpayer knows that the nudge letter is incorrect, it should not be ignored as HMRC is unlikely to disregard any failure to respond and further action may lead to expensive consequences if the matter proceeds by way of enquiry or full investigation.
Tim Thompson briefly explains how the issue of a nudge letter arises and the nature of campaigns launched by HMRC.
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Issuing a Nudge Letter
Through the Common Reporting Standard, HMRC receives millions of pieces of data every year relating to taxpayers’ financial affairs. This Data is processed using HMRC’s Connect super-computer system, checking against individual tax returns before, where considered necessary, the nudge letters are prepared and despatched.
- This procedure provides the most cost-effective way for HMRC to process the enormous volume of data by placing the onus on each taxpayer to undertake their own review work, in line with the ‘Self-Assessment’ principle which underlines UK tax procedure generally.
HMRC regularly run ‘Campaigns’ focusing on specific tax issues, through which HMRC may:
- focus on a particular group of taxpayers,
- utilise discrete information and intelligence gained affecting that particular group and promoting specific disclosure,
- advise on consequences of non-disclosure and non-payment such as, for example, criminal prosecution.
Examples of Campaigns
HMRC is currently particularly interested in:
- Non-compliance by non-UK corporations owning property within the UK where it is believed that UK taxes have not been paid, for example, Non-Resident Capital Gains Tax, or where there has been non-compliance, such as failure to file Annual Tax on Enveloped Dwellings Returns.
- People recorded as being ‘Persons of Significant Control’ in unquoted companies who have disposed of company shareholdings in 2020/21, but have not declared the same.
How Can We Assist?
As stated above, a nudge letter should not be ignored following receipt.
The nudge letter will normally enclose a Certificate of Tax Position and a Notice of Intention to Disclosure for completion and return.
It is advisable that upon receipt of a nudge letter immediate expert advice is sought.
Where HMRC is in error, prompt engagement normally leads to a prompt resolution.
If errors are discovered and corrective action is required, early communication with HMRC will normally avoid HMRC escalating the issue by further action such as imposing financial penalties.
Additionally, our Team can:
- advise on all your obligations following receipt of a nudge letter,
advise on all aspects of your tax affairs,
- advise on disclosure obligations to HMRC,
- assist in disclosure preparation,
- liaise with HMRC on your behalf.
Who Can I Contact?
The Team at Kangs Solicitors is available to support and advise on tax issues of every nature to include representing companies, directors and individuals in tax enquiries, investigations and prosecutions.
We provide initial no obligation discussion at our three offices in London, Birmingham and Manchester.
Alternatively, discussions can be held virtually through live conferencing or telephone.